Tesco extends recovery to 2015 prices

Tesco (TSCO) has moved into strong recovery mode, showing increasing evidence of a return to its former glories in these full-year results.

The headline metrics are particularly striking, albeit from a relatively low base, with a 22% increase in cash flow accompanied by a 30% reduction in net debt, partially leading to a 28% hike in operating profit.

Meanwhile, this performance has enabled the return of dividend payments, cost savings remain firmly on track with previous targets and the narrowing gap between wage growth and inflation could play into the company’s hands by way of a more confident consumer.

Tesco’s decision to discard lesser performing businesses and review its property leasing arrangements also add to the mix, whilst the integration of Booker should lead to cost synergies over the coming quarters, and is subject to high hopes.

Source: interactive investor               Past performance is not a guide to future performance

For the moment, there are not many clouds on the horizon. The fierce competition within the sector will not abate, consumer confidence generally may be hampered dependent on the outcome of any Brexit deals, whilst from an investment perspective, the projected dividend yield of 2.3% is unexceptional.

Even so, the direction of travel is now becoming positively entrenched and Tesco has demonstrated marked progress.

The shares have to some extent reflected this, with a 13% rise over the last six months. In the last year, Tesco’s 8.3% hike compares to a 1.3% decline for the wider FTSE 100 (UKX) and today’s numbers look likely to vindicate a market consensus which currently stands at a ‘strong buy’.

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Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company’s or index name highlighted in the article.